Continental/Fintelco Jv Case Analysis

1. Compute the NPV of Ariel-Mexico's recycling equipment in pesos by discounting incremental peso cash flows at a peso discount rate. How this NPV should be translated into Euros? Assume expected future inflation for France is 3% per year.

5. Is Helen Buono right that management would destroy value if all of the firm’s assets were redeployed into only the telecommunications business segment?

26. A financial manager has detrermined that the appropriate rate discount for a foreign project is 17 percent. However, that discount rate applies in the United States using dollars. What discount rate should be used in the foreign country using the foreign currency? The inflation rate in the United States and in the foreign country is expected to be 3 percent and 8 percent, respectively.

One month has to look at competition since the early 1990’s, especially since the act 1996 act. The most effective competition has come from technology evolution that enabled multiple platforms with different product-characteristics and economics to compete. They, in turn, then forced each other into cycles of further innovation. When the telecommunications act of 1996 has passed, there were hints of incipient competition in both the long-distance and video-distribution markets as a result of new technology. Local telephony was still essentially a monopoly. Although wireless was thriving, it was seen primarily as a purely mobile service.”

Two discounted cash flow analyses accompany this memo. Part A contains an adjustment for possible business erosion at Rotterdam, while part B does not make that adjustment.

a. What risk-free rate and risk premium did you use to calculate the cost of equity?

i) Given that Dozier industries does nothing to hedge this risk, assuming that spot exchange rate remains the same as on Jan 14,1986 levels,

The present value of all these cash inflows and outflows can be calculated by discounting them at 12.19%. This rate is calculated by assuming that the purchasing power parity holds in this scenario. The company can do the feasibility analysis by looking at both from the subsidiary’s and parent’s perspective by assuming that the purchasing power parity holds. Hence, this rate can be regarded as opportunity cost of investment because it is the second best alternative for the company for investment purposes.

These amounts of tax savings should be added to the incremental cost savings for each year to come up with the total cash inflows. The present value of all these cash inflows and outflows can be calculated by discounting them at 12.19%. This rate is calculated by assuming that the purchasing power parity holds in this scenario. The company can do the feasibility analysis by looking at both from the subsidiary’s and parent’s perspective by assuming that the purchasing power parity holds. Hence, this rate can be regarded as opportunity cost of investment because it is the second best alternative for the company for investment purposes.

The black market rate of Rp 50.00/U.S.$ represented a devaluation from the current rate of Rp40.4795/$ of about 23.5%.

Over the past decade, significant changes in regulations, advances in technology, and shifts in competitive dynamics began transforming the cable industry. Companies within the industry were forced to adapt by acquiring economies of scale and scope. American Cable Communication was seeking to acquire AirThread Connections for three reasons. The two companies could help each other become more competitive in an industry that is moving toward bundled package service offerings. The acquisition would help both companies expand into the business market, and lastly American Cable was in a unique position to add value to AirThread’s operations. They could obtain a significant amount of

3. How are multi-currency cash flows, currency risk and political risk being taken into account in our valuation model?

c. Is your estimate of Lex’s cost of equity appropriate as a discount rate for Lex’s total operating cash flows? Why or why not?

Netlix strategy by virtue of product design addresses the bargaining powers of both buyers and suppliers. It’s highly price efficient for both. The threat of new entrants is addressed by Netflix’s technologically savvoy “linear linking” of newer apps over broad band width. The company strategically designed the mapping and application of video streaming packages to where it has became highly speacilized. New entrants to the video streaming market would need equal broad band capability. Strategically, Netflix also didn’t compete against the cable service giants, rather relied exclusively on internet carrying cable outlets.

This project evaluates the discounted Net Present Value which shows the estimated cash flow. The cash flow forecast is for 10 year which incorporates International complexities as well as the cost of capital.